Credit management is essential as it has real economic ramifications in personal and business dealings. Poor personal credit can prevent an individual from purchasing a home, a car, or other high value items where credit is needed to pay for the item over time. Similarly, poor business credit can prevent a business from obtaining the capital it needs to grow.
However, the obfuscation of how credit is derived and the numerous variables from which it is derived make it very difficult for individuals and businesses to oversee and manage their credit. For example, personal credit is based, in some form, on payment history, outstanding amounts owed, length of credit history, new credit, type of credit in use, and credit inquires as some examples. Each of these variables may also have multiple factors from which the variable itself is composed. Payment history may be derived based on whether the entity has made any late payments, how late payments were submitted, whether entity accounts have been submitted to collections, and whether there are any charge offs, debt settlements, bankruptcies, foreclosures, suits, wage attachments, liens, or judgments. Business credit is derived from many of the same variables and other business specific variables. As should be evident, the variable list is quite extensive.
The variables or the weights attributed to these variables can differ between the different credit reporting agencies that monitor entity credit and that issue the credit scores quantifying entity credit. This is often the reason that credit reporting agencies, such as TransUnion®, Equifax®, and Experian®, issue varying credit scores for the same entity. These different variables, the variances between how different credit reporting agencies compute credit scores, and the proprietary algorithms with which the different agencies compute credit scores are the primary reasons for why credit scoring remains obfuscated.
The complexity and obfuscated nature of credit scoring make it very difficult for entities to manage, maintain, and improve their own credit. The targeted entities are unaware of all the different variables that go into their credit score. They are also unaware which one or more variables are hurting their credit and the reasons behind the negative impact.
Many services are currently available to assist entities in the management of their credit. These services range from providing credit reports that highlight deficient areas in entity credit to full concierge services in which a third party takes corrective action on behalf of an entity to fix that entity's credit.
These services are deficient because they are reactive in nature. They identify issues after the issues have taken hold and negatively affected entity credit. In other words, they do nothing to prevent the negative credit impact from occurring in the first place.
Accordingly, there is a need to proactively and automatically manage entity credit. To this end, there is a need to educate entities about their credit and the various actions that can be taken preemptively to ensure that credit is not negatively impacted in the first place.